FHA Appraisal

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REAL ESTATE TO BE APPRAISED

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A residential real estate appraisal is generally required for all mortgage transactions to assist in limiting such risks. It is a supportable estimate of property value, drawing its conclusions from data obtained from the market and the subject property. In addition, the mortgage company hires the appraiser (the licensed individual that conducts the appraisal), rather than the buyer or the seller, in order to provide a clear and objective statement of a property’s value. The buyer may be required to pay for the appraisal, but it is the lender who hired the appraiser.

The Department of Housing and Urban Development (HUD) requires appraisals for all FHA insured loans, except Streamline refinances. Though the qualifications of an appraiser will vary, HUD requires a minimum standard to be met by all FHA approved appraisers to include additional education and training, state licensing or certification, and approval by the lender to conduct FHA appraisals.

FHA emphasizes that an appraisal is not a home inspection and it does not guarantee that a home is without flaws. However, FHA does takes steps to try to see that the home is in a safe, sound and sanitary condition. For that reason, the FHA appraiser is expected to require repair or replacement of anything that may affect the safe, sound and sanitary habitation of the house. If repairs are required, the buyer will receive a list from the lender (see VC sheets) and the seller (in most cases) may be responsible for seeing that the repairs are taken care of according to set local and FHA guidelines.

HUD/FHA MAKES NO WARRANTIES AS TO THE VALUE AND/OR CONDITION OF ANY FHA-APPRAISED PROPERTY

therefore buyers/borrowers must determine for themselves that the price of the property is “reasonable” and that its condition is “acceptable”.

Seller Concessions

FHA requires mortgagees to provide appraisers with all financing data and sales concessions for properties to be security for an FHA-insured loan. Appraisers are required to identify and report sales concessions and properly address and/or adjust the comparable sale transactions to account for sales concessions in the appraisal of all properties to be security for an FHA-insured loan. Sales concessions influence the price paid for real estate. Sales concessions may be in the form of loan discount points, loan origination fees, interest rate buy downs, closing cost assistance, payment of condominium fees, builder incentives, down payment assistance, monetary gifts or personal property given by the seller or any other party involved in the transaction.

Personal Property

Items such as ranges, refrigerators, dishwashers, washers/dryers and microwaves may be considered as part of the real estate and included as part of the sale. No other appliances or chattel should be considered part of the real estate.

A dollar for dollar reduction to the mortgage amount for items not considered part of the real estate is required unless the item has no monetary value and left to the buyer’s discretion to dispose of the property.

Roofs and Attics:

The roof must prevent moisture from entering the home and provide reasonable future utility, durability and economy of maintenance. The roof should have a remaining physical life of two years. If the roof has less than two years remaining life, the appraiser must call for reroofing or repair.

FHA will accept a maximum of three layers of existing roofing. If more than two layers exist and repair is necessary, all of the old roofing must be removed as part of the reroofing.

Roofing on slopes of 2.5/12 pitch or less must be installed by a licensed roofer using built-up roofing that meets the Uniform Building Code.

Flat roofs require a roof inspection.

If the subject property is part of a large multifamily building (i.e. condo), no roof inspection is needed. If the building is a small 4 unit building or townhouse type unit covered by a condo association with the subject property having its own roof, then a roof inspection is required.

The FHA appraisers are required to inspect the attic area unless the property is a mobile home or dwelling with little or no attic (due to the interior roof slope).

The appraiser will note any evidence of holes in the roof/ceiling, the condition of the support structure, any significant water damage that is visible from within the interior and evidence of ventilation by vent, fan or window.

Basements and Crawl Spaces:

Basements must be examined by the FHA appraiser for dampness or wetness, any obvious structural problems and the condition of the furnace, hot water heater, and/or other components located there.

Sump pumps are acceptable to HUD/FHA guidelines provided that they are properly functioning at the time of appraisal. The sump pump may be hard wired by an acceptable wiring method or may have a factory electrical cord that is connected to a receptacle suitable for such use. Use of an extension cord for the sump pump is not acceptable. Though the sump pump is not a cure-all for water problems, the appraiser may still elect to reject the property if there is significant incurable ponding of water in the basement.

Property owners must insure that there adequate access to the property’s crawl space, clear of debris, and is properly vented. The appraiser must enter the crawl space with a minimum entry of his/her head and shoulders (unless access is not possible, could damage the property, or an adverse situation is suspected). HUD guidelines recommend a minimum height of 18 inches from the bottom of the joists in order to provide adequate space for maintenance and repair. Furthermore, the crawl space must not be excessively damp and not have any water ponding.

Electrical and Heating:

The FHA appraiser should examine the electrical box to ensure that there are no frayed or exposed wires. Electrical boxes may be either circuit breakers or fuses. Existing 60-amp service is acceptable if it appears that this is adequate amperage for the appliances present in the property, or those considered “standard” if the present appliances appear to be less than found in the “standard” home. Knob and tube wiring is acceptable if found to be in good condition and a minimum of 60-amps. For all electric homes and those with electric heat, 200-amps is recommended

In general, all habitable rooms must have a heat source. This does not mean that each room must contain a heating device but that each room must receive sufficient heat. In some situations where it is not feasible to extend the capacity of the main system, an electric and thermostatically controlled baseboard unit is acceptable provided it is permanently installed with concealed wiring.

Heating must be adequate for healthful and comfortable living conditions. This is defined as providing and maintaining a temperature of at least 50 degrees Fahrenheit in all living areas and areas containing plumbing systems. Further more, all permanent primary heating systems must be thermostatically controlled and properties with electric heat sources must have an acceptable electric service that meets the general requirements of the local municipal standards.

Wood stoves and solar systems: Homes with wood burning stoves or solar systems as the primary heat source must have permanently installed conventional heating systems that can maintain at least 50 degrees Fahrenheit in all living areas and those containing plumbing systems. These systems must be installed in accordance with the manufacturer’s recommendations.

Wall heaters: Wall heaters are acceptable as long as they are installed to code and designed to heat the size and layout of the entire house.

Floor heaters: Due to the inherit dangers of a floor heater, it is highly recommended that floor heaters in need of repair be replaced with another permanent heat source. They are acceptable as long as they are properly functioning and meet current code.

Nonconventional heating systems: All nonconventional heating systems, such as space heaters and others, must comply with local jurisdictional guidelines. Often these are not acceptable as the primary source of heat.

Finally, propane tanks must be a safe distance from the property. Leased tanks are acceptable when not offered for sale. Propane fired furnaces located in a crawl space area is not acceptable.

Electrical, plumbing and/or heating certifications may be called for by the appraiser when he/she cannot determine if one or all of these systems are working properly. However, the appraiser should not arbitrarily call for such certifications as they are still responsible for checking on the adequacy of these systems at the time of appraisal. If an inspection is required, it must be done by a home inspector, an inspector from the local building department, an FHA compliance inspector, a professional in the specific field (e.g. electrician, plumber) or any individual deemed qualified by the lender’s underwriter.

Public, Community and Individual Sewer Systems:

Public Sewer Systems: Public sewer systems are owned, operated and maintained by the city, county or local unit of government with the power of taxation or assessment. No certification is required by the appraiser.

Community Sewer Systems: In general, the appraiser must note on the appraisal the name of the community system(s). However, the lender must ensure that the community sewer system is in compliance with the requirements of the Health Authority having jurisdiction for satisfactory operation of the sewage treatment plant and discharge of treated wastes.

Individual Sewage Systems: For properties that cannot connect to a public system and are served by an individual sewage system that is acceptable to the local health authority, the system is then acceptable to HUD/FHA. This includes numerous types of sewage systems including cesspools, individual pit privies and mound systems.

Certifications are only required if the appraiser suspects a problem with the system, or problems are customary in the area. The appraiser will require certification by the local health authority, a licensed sanitarian or an individual determined to be qualified by the lender. Certifications obtained within three months prior to the appraisal may be acceptable if the appraiser and other parties in the transaction do not detect or know of possible existing problems.

The following types of systems are not acceptable:

Individual septic tank/drain field on a neighboring property

Individual lagoon-type or other “open” systems

The property should be rejected if it, or neighboring houses show indications of, and/or have had unsatisfactory operation of the sewage disposal system.

The property should be rejected if inspection reveals repetitive failure of the subject system and/or neighboring systems, or in an area subject to flooding or seasonal high ground water tables.

Improvements such as driveways, parking areas, patios, etc. covering the drainfield are unacceptable due to the inability for future servicing and should be removed or the drainfield relocated.

For distances between water sources and sewage, see the water / plumbing section.

Public, Community, and Individual Water Systems and Shared Wells:

Public water systems are owned, operated and maintained by the city, county or local unit of government with the power of taxation or assessment. These systems do not require certification.

Community water systems are a central system that is owned, operated and maintained by a private corporation or a nonprofit property owners association. It is the lender’s responsibility to ensure that the community system is licensed and adequate to service the property.

Individual water supply systems (i.e. wells) may be acceptable when connection to a public or community water system is not available and there is assurance of a continuing adequate supply of safe potable water for domestic needs (to include auxiliary uses for lawn and garden maintenance). The appraiser may condition for certifications of water quality and quantity such as the appropriate Health Authority approval and pump test.

Individual water wells are owned and maintained by the homeowner, and are subject to compliance with all water quality requirements of the local and/or State Health Authority having jurisdiction.

As of June 19, 1988, new construction shall have lead-free water piping. Solder and flux shall not contain more than 0.2% lead and pipe fittings shall not contain more than 8.0% lead.

Whenever the property lacks a connection to public water, water testing is required. If the local authority is unable to perform the water quality analysis in a timely manner, a private, commercial testing laboratory acceptable to the local authority may take and test water samples. Certification obtained within three months prior to the appraisal is acceptable if the appraiser4 and other parties in the transaction do not detect or know of possible existing problems.

Well Location: Individual water wells should be checked to establish the distance from the septic system. See below

A well located within the foundation walls of a dwelling is not acceptable. Water which comes from any soil formation which may be polluted, contaminated, fissured, creviced or less than 20 ft. below the natural ground surface is not acceptable, unless it is acceptable to the local health authority (certification is required for such cases). Individual water wells are not acceptable for individual lots in areas where chemical soil poisoning has been or is practiced if the overburden of soil between the ground surface and the water bearing strata is coarse grained sand, gravel, or porous rock, or is creviced in a manner which will permit the recharge water to carry the toxicants into the zone of saturation.

The following shall be used in establishing the minimum acceptable distance between wells and sources of pollution located on either the same or adjoining lots. These distances may be increased by either the health authority having jurisdiction or HUD:

Source of Pollution

Supplemental requirements

Minimum Horizontal Distance (ft)

Property line

10 ft

Septic Tank

50

Absorption Field

SUP1

100

Seepage Pit

SUP1

100

Absorption Bed

SUP1

100

Sewer lines (w/ perm. watertight joints)

10

Other Sewer Lines

50

Chemically Poisoned Soil

SUP3

25

Dry Well

50

Other

SUP2

SUP1: This clearance may be increased or decreased depending upon soil and rock penetrated by the well and aquifer conditions. The clearance may be increased in creviced limestone and pereable strata of gravel and sand. The clearance may be reduced to 50 ft. only where the ground surface is effectively separated from the water bearing formation by an extensive, continuous and impervious strata of clay, hardpan, or rock. The well shall be constructed so as to prevent the entrance of surface water and contaminants.

SUP2: The recommendations or requirements of the local health authority shall apply.

SUP3: This clearance may be reduced to 15 ft. only where the ground surface is effectively separated from the water bearing formation by an extensive, continuous and impervious strata of clay, hardpan, or rock.

Individual water wells should be located on the subject property. If not, they must be on an adjacent property, and evidence of water rights and ongoing maintenance must be provided for acceptance of the well.

Also, possible sources of water pollution from the subject and adjoining properties must be considered.

Quantity of Water: Water quantity is to be certified by either the local health authority or a licensed well driller/engineer. The pump test must evidence that for new well construction the system is capable of delivering a flow of 5 gallons per minute over at least of 4 hour period, and 3 gallons per minute over at least a 4 hour period for existing. Systems should be checked to establish that adequate amount of water pressure is present and can be sustained.

Holding Tanks: The use of holding tanks are not considered to be normally acceptable as the sole source of water unless there is no other available source of acceptable water, the use of holding tanks is “typical” for the market area, the dependence of a holding tank does not adversely affect the marketability of the property, there are readily available sources of hauled water to serve the property, fire insurance is available at reasonably affordable rates, tanks are equipped with a clean-out plug at the lowest point and a suitable pressure relief valve, and the tank has a minimum capacity of 500 gallons or larger.

Misc: Wells must be drilled no less than 20 feet deep and cased with steel or other durable, leakproof, and acceptable casing material.

If any of the following items may cause the property to be rejected or conditioned for certified compliance:

Mechanical chlorinators are not acceptable

Individual water systems utilizing springs, cisterns, lakes, or rivers are not acceptable.

Shared Wells: Shared wells may serve existing properties which cannot feasibly be connected to an acceptable public or community water supply system. A shared well shall have a valve on each dwelling service line as it leaves the well. A shared well shall service no more than four properties. A shared well must have a shared well agreement and shall be binding upon signatory parties and their successors in title. The agreement shall also be recorded in local Deed Records.

Pest Inspections:

FHA requires maximum assurances that a home is free of any infestation. A pest inspection is always required for and structure that is ground level or any structure where the wood touches the ground. However, structures in a geographic area with no active termite infestation may not require a pest inspection.

New Construction: The builder of a new home, proposed construction, a home under construction and a home less than one year old must provide a warranty against termite infestation in a new home for a minimum of on year.

All chemical soil treatments, bait systems, and chemical wood treatments must be approved by the Environmental Protection Agency (EPA) and applied in accordance with the EPA label instructions. In some cases where these methods are not feasible, pressure treated wood may be used as a measure of termite protection. Also, the use of post-construction soil treatment where the chemicals are applied only around the perimeter of the foundation is not acceptable in new construction.

Termite inspections are not required for streamline refinances with or without an appraisal.

Lead based paint:

For all properties built before January 1, 1978, the FHA appraiser must inspect all interior and exterior surfaces, such as walls, stairs, deck, porch, eaves, windows, doors, fences, etc. for defective paint surfaces (i.e. chipping, peeling or flaking paint).

If the paint is cracking, scaling, peeling, or loosening on any interior or exterior surfaces, the affected areas must be thoroughly washed, sanded, scraped or wire-brushed to remove all of the defective paint (machine sanding or use of a blow torch is not acceptable). A ground cloth should be used to catch particles of paint and surface removed and a thorough clean up should be accomplished after the surface has been prepared for painting. All materials cleaned up should be removed from the possibility of ingestion by humans. The treated surface must be repainted by a paint that closely matches the existing color, using a minimum of two coats of paint unless the affected areas are covered, when appropriate, by a material such as plywood, plaster or other suitable material.

Radon:

HUD does not require radon testing of homes to be insured by FHA financing.

Asbestos:

Asbestos used as roof shingles or siding on a house does not pose a danger. When used as a wrap for hot water pipes, it is usually covered and poses no danger. When the material is deteriorating into a fine powder and can be inhaled, it may pose a danger to one’s health. Asbestos should be removed by an expert only in those cases where the deterioration poses a serious health threat; otherwise the appraiser may condition for repair of the puncture or other damage.

The property may not be eligible for FHA financing when it is subject to hazards, environmental contaminants, noxious odors, offensive sights, or excessive noises to the point of endangering the physical improvements or affecting the livability of the property, its marketability, or the health and safety of its occupants and cannot be acceptably mitigated.

Property Locations:

Airports: Locations near an airport may be subject to the noise and hazard of low flying aircraft. Existing properties are not to be rejected solely based upon the property’s proximity to an airport unless there is indication that adverse changes in market attitude is taking place in the area (such as declining market values due to the noise). Existing homes more than one year old are acceptable in a Runway Clear Zones if the buyer acknowledges awareness of such location. Homes less than one year old are not eligible.

Railroad tracks and other high noise sources: If the home is over one year of age, noise exposure will not result in automatic rejection unless the environmental noise is a marketability factor. A site exceeding an average day-night sound level of 56 decibels in normally unacceptable, though measures may be taken to reduce these levels. Anything over 75 decibels is not acceptable. The loan may not close until certification has been made that the average day-night sound level is within acceptable levels.

Flood areas: Homes located in zones “A” and “V” (as stated on the FHA appraisal) will require flood insurance. Homes located in zones “B” and “C” do not require flood insurance. Homes that require flood insurance and are not located in an area where the National Flood Insurance Program is in force are not eligible for FHA financing. New and proposed construction is not eligible if any part of the home that is essential to the property’s value and subject to flood damage are located within the 100 year flood plain. Properties subject to frequently recurring flooding, subject to any potential hazard to life and safety or where escape to higher ground would not be feasible during flooding conditions are not eligible for FHA financing.

Overhead high voltage transmission towers and lines: High voltage lines are those that carry 60 kilovolts or greater. Distribution lines are the common lines used for supplying power to housing developments and similar facilities that often carry 12 kilovolts or less. No home may be located within the designed fall distance of any pole, tower or support structure of a high-voltage transmission line, radio/TV transmission tower, microwave relay dish or tower or satellite dish (radio, TV cable, etc.). Neither high voltage nor distribution lines shall pass directly over any structure on the property (this does not include service lines that deliver power to the house).

Oil and gas wells and tanks:

Operating wells: No existing home may be located closer than 300 feet from an active or planned drilling site. If an operating well is located in a single family subdivision, no new or proposed house may be built within 75 feet of the operating well.

Abandoned wells: Assuming a letter from the responsible authority in the state government that states the subject well was safely and permanently abandoned, a home may be located no closer than 10 feet from the abandoned well. If no such letter is provided, the home must be located at least 300 feet from the abandoned well.

Underground tanks: If an underground tank has been abandoned, its removal or proper abandonment is required (subject to applicable requirements and guidelines for removal).

12 Most Common FHA Repairs

These conditions are not listed to scare you, but to help you understand and erase any worries you may have.

The purpose of a repair is to correct deficiencies which may affect the health and safety of the occupants or the continued marketability of the property. If possible, we suggest that you make any repairs to your home prior to the appraisal. This will improve the marketability and help the sale or refinance of your home go smoothly.

1. If the home was built prior to 1978, chipping, peeling paint must be scraped and painted. This includes interior, exterior, garages, sheds, fences, etc.

2. Any useful components (appliances, floor covering, etc.) of the home, especially the roof, should have 2 years of useful life remaining. A roof should have no more than 3 layers of shingles.

3. Broken windows and doors should be replaced.

4. The cause of negative drainage must be cured (i.e., improve drainage away from house, gutters, french drains, etc.).

12. If there is a crawl space, it will be the homeowner’s responsibility to make this area accessible so that it can be thoroughly inspected.

Keep in mind that these are the most common repairs. Contact your lender with specific questions regarding your property.

5 Comments

i purchased my fannie mae home last may with a rural development loan. after moving in a month later the water line from the well coming into the house to the switch for the well blew apart. also in december my drain field failed and i had to get my septic tank pumped and discovered that there was well over 12 inches of sludge inside the tank which caused the drainfield to fail. the bank/seller supposidly had a well and septic evaluation. my question is this, can i go back on the seller/bank for compensation for these major repairs that should have been properly evaluated?

me and my wife are buying our first home and there apparently is and issue with some of the siding. I cant find any siding requirements for FHA/HUD. most of the house has board and batten siding and I’m wondering if that is sufficient, and/or what other options would satisfy the loan?

We are buying a home and we agree that we will buy it as it is. The FHA require some painting including fence. The seller will not do anything to fix the house so me as buyer try to fix it cause we really like that house. Can we just take down the fence? Will it affect the property value appraisal?

The fence should not have an affect the value of the property but you do not want to do this once you have already had the appraisal done. It can cause issues with the bank when the appraiser goes out to check if the fence was painted and discovers it has been removed. If you really want the house you should only paint it if you know for 100% that you are going to close on the house.